Managing Environmental and Social Risks in China's Unconventional Gas Sector-Lessons Learned and Application in Future Developments

Abstract

Abstract China has the largest reserves of unconventional gas in the world. Led by Chinese National Oil Companies (NOCs), and with participation from International Oil Companies (IOCs), exploration and appraisal activities for unconventional gas, in particular shale gas, have ramped up significantly since 2009. Eager to exploit domestic gas reserves and reduce its reliance on imports, the Chinese Government has implemented policies to support the industry and has announced ambitious plans for the development of the country's shale gas reserves to 6.5 billion cubic meters (bcm) per annum by 2015, rising to 60–100 bcm by 2020. China's unconventional gas reserves are concentrated in four areas: the Ordos Basin on China's northern plain, the Tarim and Junggar Basins in western Xinjiang and the densely populated Sichuan Basin in the south. Each of these areas faces significant environmental and social constraints, including availability of water for hydraulic fracturing and its subsequent disposal, land access and resettlement, and community relations (including those with indigenous peoples in some areas). While China has adopted policies to support the development of unconventional gas resources, technical and administrative standards are yet to be released. Outside of the oil and gas companies and their service providers, there is little understanding of the potential environmental and social impacts associated with unconventional gas development. Chinese officials are concerned with maintaining social stability in rural farming communities and are keenly aware that environmental issues are today a leading cause of community protests. Sensitive to issues that may affect farmland or the groundwater required to sustain the livelihoods of China's rural residents (and the potential for ensuing social unrest) Chinese regulators are beginning to scrutinize more closely activities associated with the exploration and development of unconventional resources. Similarly, local communities are concerned about the environmental impacts from exploration and development activities and are becoming more vocal in their demands that they too are beneficiaries of upstream activities. Demonstrating to regulators and to the community that unconventional resources can be developed in an environmentally and socially responsible manner will be critical to the future success of the industry. The paper concludes that the current round of exploration, appraisal and pilot testing activities being undertaken for unconventional gas in China represents a window of opportunity for this to be demonstrated at a small scale prior to scaling up future field developments.